The spirit of Schumpeterian economic development theory is creative destruction carried out by entrepreneurs, who must have sufficient credit for carrying out innovation. This paper portraits a twostage model which incorporates the impacts of one countrys exchange rate volatility and domestic financial development on the fund for the firms innovation. By taking a countrys exchange rate regime into consideration, we can have an extended version of Schumpeterian hypothesis in open economy. In this version of Schumpeterian development scheme, the countrys exchange rate regime and financial development affect collaboratively a countrys development through the fund for entrepreneurs innovation. This paper also employs a GMM estimation of dynamic panel data model of growth, in which the interaction term of exchange rate regimes and financial development are included. The results show that there is a statistically significant correlation between the interaction term and economic growth.
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